Statutory exemption cannot be denied for a procedural lapse when a revised return and audit report are filed before assessment.

Exemption under section 11 could not be denied merely because the original return was belated and the audit report was not filed with it, where a revised return was filed before assessment and supported by the report. The Court treated the audit report requirement as procedural on the facts and held that the Assessing Officer wrongly ignored the revised return as non est. It also noted that the Department should have sought the relevant information before refusing exemption. The assessee remained entitled to the statutory relief, so the deletion of the addition was upheld and the Revenue's challenge failed.

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Issues: Whether exemption under section 11 of the Income-tax Act, 1961, could be denied merely because the original return was belated and the audit report was not filed with that return, and whether the revised return supported by the audit report could be rejected as non est.

Analysis: The assessee had claimed exemption under section 10(23C)(vi) in the original return and, on learning that such exemption was not available, filed a revised return claiming exemption under section 11 with the supporting audit report. The Court held that the Assessing Officer wrongly treated the revised return as non est, because the assessment itself had been made under section 143(3) and the assessee was otherwise entitled to the statutory exemption. The filing of the audit report was treated as procedural and not a mandatory condition in the facts of the case. The Court also held that the Assessing Officer ought to have sought the necessary information before denying the exemption, and that the Department could not take advantage of the assessee's ignorance.

Conclusion: The revised return and supporting audit report could not be ignored, and the assessee was entitled to exemption under section 11. The deletion of the addition was upheld and the Revenue's appeal failed.

Ratio Decidendi: A statutory exemption should not be denied on the basis of a technical or procedural lapse where the assessee is otherwise entitled to the relief and the necessary material is furnished before assessment is completed.

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